You have probably been hearing a lot about the new robo advisers and how they are changing the financial industry. Some of you can’t wait to try one out while others say they will not even consider it. Before you get too excited – one way or the other – it might be best to get an understanding of what a robo adviser can and cannot do and when you might want to use one.
The advice to be obtained by using a robo adviser is focused on portfolio management – allocation of a client’s portfolio assets including stocks, bonds, funds , and ETFs – and uses portfolio management software and techniques very much the same as most financial advisers use. The online availability of such advice allows clients to obtain the advice without the necessity of visiting an individual adviser and also without the costs and account size restrictions imposed by many individual advisers and their firms.
Low expense, quality advice – what’s not to like? Your robo adviser, unlike some financial advisers, cannot give you personalized advice about non-investment matters or even some investment related issues. That means you will not be getting advice from your robo adviser on setting and reaching life goals such as retirement timing and spending. There will not be help in planning for business succession, charitable gifting, estate planning and the like. Your robo adviser will not be there to offer encouragement and comfort when the markets drop, you send children or grandchildren to college, you lose a family member and experience a wide variety of life events that inevitably tie into your finances.
Remember, if it is simply advice on choosing a few investments, the robo adviser is a very good bet. But if it is about something more in your financial life, you will need something better, and that is an adviser able to see the big picture and relate to your needs.